Walgreens Seeks to Set Its Global Position With Consolidation

Walgreens seeks to set its global position with consolidation of smaller drug stores in the United States. Consolidation would be the result of new federal cost tightening under the Affordable Health Care Act, Walgreen officials said.

The company, Walgreens Boots Alliance, is readjusting to its own consolidation of the American company and the British health and beauty company of Alliance Boots. Walgreens executives said the company could be interested in the Rite Aid chain. Rite Aid has 4,500 stores spread across the United States in 31 states. Company officials said socialized medicine pushed consolidation in Europe and the United States is growing increasingly ready for something similar.

It could be a while for Walgreens to make its move to buy Rite Aid. Right now, the chain is cutting company costs by $1.5 billion as a part of its consolidation with Alliance Boots, which is the largest pharmacy chain in the United Kingdom. Cuts are being made in the closing of 200 stores in the United States and cuts are also being initiated from overhead in the U.S. operation. Officials said the closings are a small part of the company’s overall business in this country. Walgreens has more than 8,200 stores across the United States. Officials have not identified which stores will be closing, but said the cutbacks will not affect distribution centers. Additionally, the consolidated company plans to open as many as 200 more pharmacies elsewhere that are more conducive to the global market. The cost-saving measure is expected to reduce costs by $500 million before the fiscal year 2017 ends.

Other changes for the Illinois-based chain include streamlining certain aspects, including informational technology and reorganizing corporate operations. The company’s profit was down from expectations with earnings of $26.57 billion compared to predictions of $27.73 billion. Business analysts said those figures are one factor in the Walgreens decision to put the company in a better position for consolidation in the United States.

Business watchers acknowledge Walgreens is initiating a different business plan than it did a decade ago. It was opening around 500 stores a year back then. Walgreens number one competitor, CVS, has around 7,800 stores. Walgreens said it could have store expansion in the United States in the future, but the new way of delivering medicine to patients requires certain synergies.

Walgreen officials said the Affordable Health Care Act, commonly known as Obamacare, is more involved in pricing of pharmaceutical products and doing away with overpricing. That motivates drug stores to evaluate costs and steer patients to generic medications. The cost squeeze also comes from Medicaid expansion and more lower-income families getting health care subsidized by the federal government. The reductions promote consolidation, officials said. Stefano Pessina, who is Walgreen’s top executive, said in a recent company meeting that the cost squeeze seen in Europe in recent decades, resulting from government control over health care, will shift to the United States.

Pessina said he remains hopeful about Walgreens’ future, and expects it to be a giant in the global market. The key, he said, is for Walgreens to continue to seek consolidation to set its global position with inclusion of smaller drugstores in the United States.